Affiliate Nexus and State Sales Tax

(Grabbing Remote Vendors via So-Called "Amazon" Laws)

By Annette Nellen, CPA, CGMA, Esq. 
San Jose State University

  • Adopting States and Links:  NY     NC     RI     IL     AR     CT     VT     CA      PA    GA   KS  MN  ME  MO  NJ  MI   CO  NV  OH  

  • Map of actions some states have taken to try to improve sales/use tax collection (July 2014)



Affiliates: Some vendors offer compensation to individuals and organizations if they have a link to the vendor's website and someone clicks on it. Generally, the website owner (referred to an an "associate" under Amazon's program) is compensated if a sale is made. Compensation may be based on the volume of clicks or a commission based on the sales generated from the clicks. Typically under these arrangements, the website owner is not an employee or agent of the vendor and has no information on who clicked the link or what purchases, if any, were made.

"Affiliate" nexus refers to a connection between a vendor and another entity that may be related in some way or that performs certain work that can be attributed to the vendor to cause, or presume to cause, the vendor to have nexus in the taxing jurisdiction. This website explains and provides links to the type of affiliate nexus where a vendor may have nexus due to its relationship with a website owner or other party that enables visitors to reach the vendor's website. Other forms of affiliate nexus that several states have adopted treat an entity that is related to the out-of-state vendor in some way and where the two entities have a common name, products, trademarks or advertising (the laws vary from state to state), as creating a taxable presence for the out-of-state vendor. This website focuses on the so-called "Amazon" type affiliate nexus laws.

Background: Legislation enacted in New York in April 2008 presented a new approach for getting certain Internet vendors to collect sales tax from customers in New York, despite lack of a physical presence. The approach presumes that certain individuals and organizations in New York that have a specified relationship with the out-of-state vendor are affiliates of the vendor that constitutes the requisite physical presence in the state to allow the state to require the vendor to collect sales tax.

Two large Internet vendors (Amazon and challenged the New York law. The trial court decision ruled for the state which led several states to  enact or attempt to enact similar legislation. Subsequent litigation supported the trial court, but also allowed for the parties to pursue litigation to show that the law may be unconstitutional as applied to them (rather than in general).

At October 2011, 8 states have enacted the so-called "Amazon" law with variations from the New York approach. More states are considering legislation and in September 2011, a promise by Amazon to work to get Congress to enact legislation to require remote vendors to collect sales tax, brings more attention to the longstanding congressional proposal.

Website Approach: This website includes a timeline of events starting with the April 2008 New York legislation. Information and links are also provided to the relevant court cases which led Amazon and Overstock to challenge the NY law on constitutional grounds. Links are also included to helpful articles, trade association information, government organizations and tax agencies, and press releases from parties affected by the affiliate nexus legislation.

Note: Parts of this content is from the webmaster's prior work including "Grabbing Remove Vendors," AICPA Corporation Taxation Insider, 7/31/08; "Creating More Sales Tax Collectors," AICPA Tax Insider, 7/14/11; and various blog posts.

Interstate Sales Tax History

Since at least 1872 when Montgomery Ward issued its first mail order catalog, vendors have made sales to customers without being physically present in the state. Sales taxes have existed since the 1920s. Despite this long history, we have no effective system for collecting sales and use tax on sales by remote sellers.

A 1965 congressional report noted: the present system of State taxation as it affects interstate commerce works badly for both businesses and the States. (State Taxation of Interstate Commerce Report No. 952, 9/2/65, Vol. 4, p. 1127 (the Willis Commission report))

While the 1965 congressional report made recommendations for administering state sales tax for interstate commerce, no action was taken. Litigation eventually led to our current sales tax nexus standard set by the US Supreme Court in 1992 in Quill, 504 US 298. The Court ruled that physical presence was necessary for substantial nexus that would allow a state to impose sales tax collection obligations upon a vendor. A continuing issue is the amount and degree of physical presence needed. Most states provide some guidance to help answer this question.

The Court also noted that per the Commerce Clause, Congress has the authority to decide whether, when, and to what extent the States may burden interstate mail order concerns with a duty to collect use taxes.

E-Commerce Challenges

The e-commerce model makes it easy for a vendor to operate in one state and have customers in every state. This increases the number of transactions where states must look to their resident consumers to self assess use tax because remote sellers have no collection obligation.

Certainly, it is easier for states to have thousands of vendors collect and remit sales tax than to get millions of individuals to remit use tax. Auditing vendors is also more efficient than auditing individual buyers.

However, for a state to collect sales tax from a remote vendor, it must either convince the vendor to voluntarily do so or find a way for the vendor to have a physical presence.

New York's 2008 Legislative Change

Chapter 57 (4/23/08) broadens the definition of vendor at NY Tax Law 1101(b)(8). Under the new provision sellers are presumed to be soliciting business and thus required to collect tax if, per an agreement, they compensate New York residents for directly or indirectly referring potential customers. Referrals may be made through a website or other means. The presumption only applies to sellers with over $10,000 of sales to New York customers made via the referrals in the prior four quarters. Sellers may rebut the presumption by showing that the residents did not solicit sales in New York for them. (Bill Summary, p. 10)

The Governor�s budget estimated that this change would generate $47 million in 2008/2009 and $73 million in 2009/2010 � an indication that use tax compliance by New Yorkers is a problem.

The New York State Department of Taxation and Finance issued guidance on the vendor presumption (TSB-M-08(3)S) and how to rebut it (TSB-M-08(3.1)S). FAQs interpreting the new law also exist.

Vendor Reaction: On April 25, 2008, Amazon filed a complaint challenging the constitutionality of the new provision. Amazon argues it has no physical presence in New York as required for sales tax collection. Per Amazon, the independent third parties in its �Associates Program� perform advertising rather than solicit sales. Per Tyler Pipe, 483 US 232 (1987), such activity is not sufficient to find nexus. Amazon states that the associates are not its agents. Also, because membership in the program does not depend on residence Amazon does not know which associates are legal residents of New York.

Amazon started collecting sales tax from its New York customers. As noted in its complaint, the new presumption �is effectively irrebuttable, even though it is not true.� (p. 11)

In contrast,, which also filed suit, terminated its relationships with its approximate 3,400 New York affiliate advertisers. (press releases of 5/30/08 and 5/15/08)

In the final appeal, Amazon and Overstock lost (3/13) - here

Links to New York law, rulings and litigation - here.

Counterpoint: A private ruling in Missouri issued 4/21/08 found that a remote seller had no nexus in the state because goods were shipped by mail. The ruling also notes that under Missouri law, �advertising in the state through media� is not enough to establish nexus (LR 4702).

In a California Board of Equalization memo (6/19/08) on the New York law change, staff conclude that a link on an affiliate�s website does not by itself make the affiliate an authorized salesperson for the remote vendor.

States' Rationale

At October 2011, seven states had followed New York's lead and enacted affiliate nexus laws; although not all identical to New York's statute.

States pursue affiliate nexus laws to improve collection of sales and use tax. The sales tax nexus standard established by the US Supreme Court is physical presence (Quill, 504 US 298 (1992)). A remote (non-present) vendor is not required to collect sales tax. However, customers are required to self-assess and pay use tax. States would prefer to collect the sales tax from thousands of vendors rather than millions of customers. Thus, finding ways to require remote vendors to collect is favored.

The presumption in an affiliate nexus law is that a resident is soliciting sales and the relationship between the vendor and resident is sufficient to create substantial nexus. The dollar threshold (such as over $10,000 of sales in 12 months via in-state residents) helps to ensure that the connection is not a slightest presence (no nexus).

States also support affiliate nexus to help bring equity in sales tax collection among vendors with in-state customers. As the trial court noted in Amazon v. NY State Dept of Taxation and Finance, 2009 NY Slip Op 29007, the law "obligates out-of-state sellers to shoulder their fair-share of the tax-collection burden when using New Yorkers to earn profit from other New Yorkers."

Affiliate nexus laws are also viewed as modernizing the law in light of how today's technology enables Internet vendors to create markets. California Board of Equalization member Betty Yee described California's affiliate law as an "update ... in light of new technology by removing out-dated provisions" (News Release (PDF), 6/30/11).

Comparisons Among States That Have Adopted "Amazon" or "Click Through" Affiliate Nexus Laws

Following is a summary of the affiliate laws enacted in eight states from 2008 through July 2014, listed in the order of enactment. It also includes Pennsylvania where the Department of Revenue issued Sales and Use Tax Bulletin 2011-01 that states it is following the affiliate nexus approach. The laws are mostly similar to what New York originally enacted in April 2008; significant differences are noted in the chart with additional details and links provided. Note that some states without specific affiliate nexus or click-through nexus statutes may still pursue vendors with certain representatives or affiliates in their state under their standard definition of sellers subject to sales tax collection. See, for example, Bloomberg BNA, SALT Talk Blog, "State Tax Snapshot: Many States Say Affiliate Nexus is Already in the Tax Code," 2/13/12.












Threshold 4-quarter sales amount









none $50,000

Other thresholds









must be solicitation No

Solicitation presumption rebuttable?









n/a Yes










no no
Effective date 6/1/08 8/7/09 7/1/09 Modified August 2014 (see info below) 10/24/11 7/1/11 when 15 other states adopt 9/15/12 (1/1/13 if federal law enacted) is a "reminder" so was always the law














Threshold 4-quarter sales amount










Other thresholds










Solicitation presumption rebuttable?



















Effective date 7/1/13


§297A.66 as changed by HR 677 (Chap 143; 5/23/13)


H.P. 251 - L.D. 346 (6/5/13) - 90 days after legislature adjourns
SB 23 (7/5/13)

Eff. 8/28/13 (?)
AB 3486 (6/30/14)
Eff. on or after 7/1/14

amends C.54:32B-2(i)(1)(C)

 AB 380 (Chapter 218, 5/27/15)

Eff. 10/1/15

HB 64



Click here for links to the laws, state agency guidance, litigation, and relevant news and articles for the states noted above.

Map of state efforts to improve sales and use tax collection.

Nellen, From Website Links to Collection Points, CA Bar Tax Network Newsletter, Nov. 2011


States enacting affiliate nexus provisions projected significant revenue gains. California estimated that full compliance with the new law would generate an additional $317 million of sales tax for FY 2012-2013 (Analysis AB 153, 4/12/11) (this represents revenue to be collected from vendors that customers would otherwise have been paying as use tax).

However, it is unlikely that any of the states, other than New York, realized or will realize an appreciable increase in tax collections. This is because in the eight states, two large Internet vendors - Amazon and Overstock, canceled their in-state affiliate arrangements (Amazon did not cancel in New York though). Other vendors may have done the same. The Performance Marketing Association (PMA) estimates that about 200 remote vendors cancelled their contracts with New York residents.

Cancellation of such contracts not only means that the affiliate nexus law won't apply, but also that state income revenues will drop due to the reduced income of the affiliates. The PMA estimates that prior to enactment of affiliate nexus legislation in Illinois, the approximate 9,000 affiliates there paid about $22 million in state income tax (PMA Press Release, 6/1/11).

The new laws have also resulted in litigation. Both Amazon and Overstock filed lawsuits in New York challenging the constitutionality of the provision. Others have also filed suits (for example, the PMA filed a complaint (PDF) (6/1/11) in Illinois).

Finally, the affiliate nexus laws only potentially reach remote vendors with affiliate arrangements. Thus, states continue to face use tax collection challenges for sales by other remote vendors.

Alternative Approaches:    States       Federal     Other approaches

State Actions

SSUTA - As suggested in the 1960s, uniform rules would help vendors and states. However, uniformity is difficult to achieve. The closest recent effort is the Streamlined Sales and Use Tax Project (SSUTA). The SSUTA offers simplification through uniform definitions, paperwork, and registration. Over 20 states have joined the SSUTA to have uniform sales tax laws in the hopes that Congress will allow them to collect sales tax from remote vendors. Adopting states must also offer amnesty to sellers who register to collect. It is unlikely that all states will adopt the SSUTA unless Congress provides an incentive or mandate. The SSUTA does not include rate simplification because local jurisdictions may set their own rate.

SSUTA includes some simplifications on how vendors can compute, collect and transmit sales tax in all state in which the vendor is registered. For example, the SSUTA Governing Board certifies service providers that vendors can use to help with tax collection. For more on this see: (1), a Certified Service Provider, and (2) SSUTA list of CSPs.

Click here for a helpful SSUTA guide from

Affiliate Nexus Via Related Entity - Arkansas, Minnesota, Idaho, and a few other states modified their sales tax laws to provide that a related party can create substantial nexus. For example, under Idaho's rule (HB 320, Chapter 49), if a vendor and in-state business are related and use an identical or substantially similar name, trademark or goodwill to develop, promote or maintain sales, or the in-state business provides services to, or that inure to the benefit of, the out-of-state business related to developing, promoting or maintaining the in-state market, the vendor has substantial nexus.

These approaches also face constitutional challenges. Similar names or advertising alone is unlikely to meet the Quill nexus standard as it does not make the in-state entity an agent of the remote vendor and therefore does not create a physical presence for the seller. Several cases failed to find nexus in similar circumstances (for example, SFA Folio Collections, Inc., 585 A.2d 666 (Conn. 1991) and Current, Inc. v. State Board of Equalization, 24 Cal. App. 4th 382, 29 Cal.Rptr.2d 407 (1994)).

Require Registration As Requirement Sell to State - In 2003, South Dakota enacted a rule prohibiting public corporations from doing business with vendors that do not collect sales and use tax (HB 1261, Chapter 34).

Notice to Customers and Reporting - A few states, including Colorado, South Dakota and Vermont, enacted notice laws that require the remote vendor to provide information about the use tax to buyers. Colorado also required large, remote vendors to issue information returns to customers and the state. In January 2011, a preliminary injunction was granted to the Direct Marketing Association that challenged the constitutionality of the Colorado law (District Court decision, 1/26/11). In March 2012, the District Court in Colorado held that the law was unconstitutional.

  • Multistate Tax Commission model proposal - here

Making Deals - While not a solution to improve use tax collection, some states have negotiated with Amazon (and perhaps other e-commerce vendors) to excuse them from sales tax collection in exchange for Amazon building a distribution center in their state (which would definitely create a physical presence for the vendor).

Lawsuits - In November 2011, Simon Malls filed a lawsuit against the State of Indiana for not enforcing sales tax collection obligations on Amazon.  Also see Bloomberg story - here.

Forbes, "10 States Aiming to Tax Internet Sales"

Federal Proposals

113th Congress

112th Congress

The 112th Congress had three proposals for allowing states to collect sales tax from remote vendors:

1. The Main Street Fairness Act (H.R. 2701 and S. 1452 (112th Congress)) proposes that to the extent the SSUTA meets specified simplification standards, adopting states may collect sales tax from remote sellers. There is an exemption for small sellers.

Prior versions of the Main Street Fairness Act:

The small seller exemption challenges the touted simplification. Also, unless states exempt purchases from small businesses from use tax, buyers would still need to self-assess use tax.

2. The Marketplace Equity Act of 2011 (H.R. 3179 (112th Congress)), is similar to the Main Street Fairness approach but includes the possibility of a single rate per state. Includes a small seller exception "for remote sellers with gross annual receipts in the preceding calendar year from remote sales of items, services, and other products in the United States not exceeding $1,000,000 (or such greater amount as determined by the State involved) or in the State not exceeding $100,000 (or such greater amount as determined by the State)."

  • Information from sponsors Congressmen Womack and Congresswoman Speier

3. The Marketplace Fairness Act (S. 1832 (112th Congress) allows both states that have adopted the SSUTA and those who have not, but who modify their sales tax to meet the simplifications specified in S. 1832 to collect from remote vendors. Small sellers, defined as having gross annual receipts for remote sales in the US in the prior year in excess of $500,000, are exempt. As it is likely that some states, such as California are not going to join the SSUTA with its one-vote-per-state Governing Board, S. 1832 allows for a broader solution to the issue of collecting sales/use tax on out-of-state sales.

  • Amazon supports this bill - here

  • California Board of Equalization Horton supports this bill - here

Resolutions on Small Business - S. Res. 309 (Wyden) and H. Res. 95 (Lundgren) - "A resolution supporting the preservation of Internet entrepreneurs and small businesses." One of the "whereas" clauses provides: "Whereas any Federal legislation that would upset the free and fair Internet marketplace and allow State governments to impose new, onerous and burdensome sales tax-collecting schemes on out-of-State, Internet-enabled small businesses would adversely impact hundreds of thousands of jobs, reduce consumer choice, and impede the growth and development of interstate commerce."

Hearings -

Articles and Reports -

Other Possibilities

Another solution to explore is better use of technology, such as at the time of sale having the buyer's credit card charged sales tax by the state tax agency. This approach results in no filing obligations for vendors or buyers.

  • Amazon's program to collect sales tax for "Marketplace Professional sellers and Webstore sellers" - Amazon charges "2.9% of all sales and use taxes and other transaction-based charges we collect"

  • 6/23/08 blog post

  • Testimony of Annette Nellen submitted to CA Assembly Revenue & Taxation Committee hearing of 2/28/11

Tax Policy Considerations

What is the right answer for improving collection of sales and use tax in the Internet era? Are the affiliates soliciting sales as required by constitutional interpretations (see Quill, supra, and Tyler Pipe, 483 US 232 (1987)? How is equity to be achieved for all buyers and vendors given the variety of ways that taxable items are marketed and sold?

Opponents of the affiliate nexus approach argue that affiliates provide advertising services rather than solicit sales. They observe that the Internet allows for new advertising approaches whereby instead of an advertiser paying in advance for uncertain results (such as with a television commercial), advertisers can have website ads posted at little cost and then only pay website owners based on the effectiveness of the ads as measured by the number of clicks or the sales ultimately made.

Commission-based arrangements raise questions though as to what the payment is for. If the website owner can get customers to purchase by first clicking on their link, they generate money. But is that soliciting or just an uncommon payment for advertising services? Unlike traditional solicitation, the website owners do not know what was purchased, and do not handle orders, money or returns. (See Nellen, "Drafting and Interpretation and the Odd State of the Law Produced," AICPA Tax Insider, 6/11/09.)

Can technology improve sales tax collection? Probably. The SSUTA project offers software solutions to vendors to aid in sales tax collection. Technology also enables state sales tax to be charged simultaneously with all purchases of taxable items, with the revenue going immediately to the state. Filing obligations of all parties would be greatly reduced.

These are significant issues given the continued growth of Internet sales. The affiliate nexus litigation in the states and possible action by Congress will eventually provide guidance.


Comments to Webmaster

Anything missing?  Please contact Annette Nellen -  Thank you.


State Details (in order of enactment of affiliate nexus/"Amazon law")

New York

  • Law: summary of Chapter 57 of the Laws of 2008 (4/23/08)
  • Guidance:
    1. TSB-M-08(3)S  - overview to rules, paying per clicks versus a commission, how to rebut the presumption
    2. TSB-M-08(3.1)S - additional information on how to rebut the presumption
  • Amnesty: A taxpayer newly subject to sales tax collection due to the law change could obtain limited amnesty on past sales tax obligations if they registered by the specified date.
  • Litigation by Amazon and Overstock:

1.      January 2009 court decision for cases involving Amazon and Overstock - Dkt. No. 601247/08, 1/12/09; Dkt. No. 107581/08, 1/12/09 - The Public Library of Law

a.       Supreme Court of NY dismissed claims for failure to state a cause of action in that the companies could not prevail to find the law unconstitutional.

b.      Per court - affiliates want to earn money so will encourage sales.

                                                                                      i.      it is not irrational to presume that at least some of them will actively solicit business for the remote seller from within the State from others within the State."

2., LLC v New York State Dept. of Taxation & Fin., 913 NYS2d 129, 2010 NY Slip Op 07823 (App Div, First Dept., 11/4/10) (&

a.       Remand - although we do not find that the facial challenges have merit, further discovery is necessary before a determination can be rendered as to the as-applied Commerce and Due Process Clauses claims.�

b.      Give taxpayers an opportunity to develop a record which establishes, actually, rather than theoretically, whether the in-state representatives are soliciting business or merely advertising on their behalf.

c.       Amazon's 3 arguments and appeals court response:

                                                                                      i.      Statute unconstitutional because Amazon lacks substantial nexus with NY

1.      Court - law applies only if have business-referral agreement with a NY State resident who receives a commission based on a sale in NY.

2.      Court - law only applies to solicitation, not passive advertising.

3.      Here - solicitation:

a.       Can rebut via contract prohibiting in-state rep from soliciting + annual certification from in-state rep that it has not engaged in any prohibited solicitation activities (TSB-M-08(3.1)S).

b.      System encourages solicitation because can then earn more money.

c.       Tax Dept guidance (TSB-M-03(3)S)  if paid per click (even if no sale) rather than per commission (only if there is a sale), would be considered advertising rather than solicitation and there would be no nexus presumption.

                                                                                    ii.      Statue violates due process clause because enacts an irrational and irrebuttable presumption, and is also vague

1.      Court - presumption is NOT irrational because both Amazon and associates want to make money.

2.      Court - solicitation not vague.  An advertisement in a newspaper is clearly not solicitation, as it is geared to the public at large. Likewise, the maintenance of a Web site which the visitor must reach on his or her own initiative is not, under the statute, or the advisory opinions, a solicitation.

3.      On the other hand, the targeting of a potential customer by the transmission of an e-mail is no different from a direct telephone call or a mailing to a customer. Both constitute active initiatives by a party seeking to generate business by pursuing a sale.

                                                                                  iii.      Statue violates Equal Protection Clause because it targets Amazon in bad faith

1.      Court - no, also applies to Overstock and other similar vendors.

2.      Court - Amazon not similarly situation to vendors without an associates program


 3. In the final appeal, Amazon and Overstock lost (3/13) - here

4. and asked the Supreme Court to hear their case. Cert was denied on 12/2/13.

North Carolina

Rhode Island

New Mexico

  • NM has not enacted legislation on affiliate nexus, but the Dept of Revenue issued Ruling 401-10-7 in 2010 on whether such an arrangement created nexus for corporate income tax or gross receipts tax purposes. The analysis is interesting, but since these determinations are so fact specific, no final determination was provided.





  • Law: H 436 (5/24/11)
  • The affiliate nexus provision is not effective until at least 15 states enact similar legislation.
  • The legislation also includes a requirement for out-of-state vendors to provide notice to customers of their use tax liability.


  • Law: ABX1 28 (6/29/11) - effective 7/1/11.
    • Affiliate nexus with a rebuttable presumption. Applies if in-state sales from affiliates exceed $10,000 and the vendor's in-state sales from all sources exceed $500,000. This $500,000 requirement is to avoid having many eBay sellers subject to California sales tax collection. Because eBay is located in California and receives a commission from sales, the sellers would be subject to the typical form of affiliate nexus legislation is their California eBay sales exceed $10,000 in the prior four quarters.
    • An additional threshold exists in that the retailer must have total sales of tangible personal property to California buyers in excess of $500,000 in the prior 12 months. Presumably, this additional threshold exists to protect most eBay sellers from having to collect California sales tax since they pay commissions to California-based eBay (making eBay similar to an "affiliate"). Thus, the California affiliate nexus law only applies to large retailers with affiliate arrangements with California residents.
  • Events subsequent to enactment of ABX1 28:
  • Modification: AB 155 (9/30/11) is enacted. This law delays the effective date of ABX1 28 to 9/15/12. However, if Congress passes legislation on sales tax and remote sellers (such as the Main Street Fairness Act, H.R. 2701 and S. 1452) by 7/31/12, then effective date will be 1/1/13.

    • Note: Not this is not a complete solution to collection of sales/use tax. The affiliate nexus law only applies to retailers with affiliate relationships where the gross receipts thresholds are met or where the vendor has an in-state entity providing services.
  • CA has not adopted the SSUTA that would let it collect from all remote vendors if Congress enacts legislation.
  • Commentary:
  • Effective 9/15/12 + Guidance from the Board of Equalization:



  • HB 386 (April 2012), Section 6-1


  • SB 83 (April 2013) - click here for text of new law effective 7/1/13.




New Jersey

  • AB 3486 (effective 7/1/14)

  • Information from the NJ Department of the Treasury

  • NJ Division of Taxation Technical Bulletin - TB-76 (12/12/14)




  •  AB 380 (Chapter 218, 5/27/15)
  • Eff. 10/1/15


  • HB 64
  • Effective 7/1/15
  • Other changes also made.  See helpful summary from Grant Thornton (8/5/15).

Comments to Webmaster

Anything missing?  Please contact Annette Nellen �  Thank you.

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Updated DMarch 31, 2016                                                    

Website created and maintained by Professor Annette Nellen, not by SJSU.
If you know of something helpful to add to this reference site, please contact Annette Nellen -

Other nexus issues - Information on Public Law 86-272 for income tax nexus.

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Last Modified: Feb 22, 2023